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PAPER MARKET UPDATE -- Paper Industry Strikes Out

August 2005
BY MARK SMITH

Technology Editor

Can it ever be reasonable to have a wholly positive outlook for printing paper? The answer would seem to be "no," at least from the buyer's perspective.

Paper is so essential to print that one feels compelled to look for any potential sign of trouble. The cost of being caught short is too high and memories of the bad times (shortages and soaring prices) too lasting not to err on the side of caution.

Plant strikes are just the latest additions to the list of reasons for paper buyers to adopt a cautious outlook. Other concerns have been in place for some time, including paper manufacturers desperate to increase prices from historic lows, capacity reductions due to consolidation and expected growth in paper demand fueled by improvement in print buying.

July opened with an agreement to end a labor strike that had shut down the Finnish paper industry for seven weeks. Yet, announcements of the deal still included speculation that the full impact of the shutdown had yet to be felt by the global marketplace.

About the same time, it was announced that negotiations to end a strike at UPM Kymmene's Miramichi, Canada, paper mill had broken off. No new talks were scheduled.

Set against this uncertain backdrop was a series of announced price increases. Even as manufacturers were floating a second round of mid-year increases, reports were coming out about softness in various grades and erosion of earlier price hikes.

Drawing on years of experience as a marketing executive at a paper company, Jack Miller now provides independent consulting and market intelligence as president of MarketIntell in Shelton, CT. Miller agrees that there are areas of softness in paper demand and pricing.

"For uncoated free sheet, the price hikes implemented in the spring have now been just about completely eroded, and certainly will be by this month," Miller contends. Given that the declines in shipments have been roughly balanced by capacity reductions, he doesn't expect any big swings in pricing for the grade.

Shipments of uncoated offset are down due to loss of market share to coated grades and value-added, high bright uncoated groundwood grades, the industry consultant continues. "Declines in shipments overstate the drop in real demand, however, because there was some inventory building in 2004. That inflated the shipment and apparent consumption numbers for 2004, and reduced 2005 shipments as this inventory was worked off."
 

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